IRS Settlement Offer Form

Andrea Miller

Expert Contributor
Last Updated: December 19, 2021

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With an offer in compromise, the IRS may settle your back taxes for less than your full liability.
To qualify, you must have documentation showing that repaying the entire amount would cause undue hardship.
If your offer is rejected, you have the right to appeal the IRS decision within 30 days.

The IRS settlement offer form is used to request an offer in compromise (OIC). With this program, the IRS agrees to settle your back taxes for less than the full amount owed. If you cannot afford to pay your past-due tax balance, requesting an offer in compromise can prevent further IRS collection actions.

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1 Is an OIC Right For Me?

2 How Do I Apply for an Offer in Compromise?

3 How Much Should My Offer Be?

4 What Happens If My Offer Is Rejected?

Is an OIC Right For Me?

The IRS designed this program to assist taxpayers for whom paying the tax balance would cause financial hardship. To request an OIC, you must submit an application that provides detailed information about your finances, including back taxes, assets, income, and expenses. The IRS will use this data to determine whether your offer will be accepted. If the amount offered does not represent the highest amount the IRS can reasonably collect based on your financial situation, it will not be accepted.

To determine whether you are eligible for an offer in compromise, you can use the IRS’s online prequalification tool. You’ll answer a few basic questions to see whether you meet the criteria.

How Do I Apply for an Offer in Compromise?

Depending on your specific circumstances, you will need to complete one or more of the following forms.

Form 656: Offer in Compromise. This form details the requested agreement, including the offer amount and how it will be paid. Form 656 requires a nonrefundable processing fee (currently $187) and a down payment equal to 20% of your offer. For example, if your offer is $10,000, you must send $2,187 with your application.
Form 656-A: Income Certification for Offer in Compromise Application Fee and Payment. If your household income is less than 250% of the federal poverty threshold, you can fill out this form to request a waiver of the down payment and application fee.
Form 656-L: Offer in Compromise (Doubt as to Liability). This is the form you should fill out if you are requesting an OIC because you think the IRS has assessed your tax balance incorrectly.
Form 433-A (OIC): Collection Information Statement for Wage Earners and Self-Employed Individuals. This form requires extensive financial information. It must be submitted along with your offer and may be requested again by the IRS if your offer is approved. This is done to ensure that your financial situation hasn’t changed for the better, in which case the offer would be rescinded.

Before filing these forms, make sure you have submitted all outstanding tax returns. If you haven’t, your OIC will be immediately rejected. What’s more, your down payment and processing fee will not be returned but applied to your back taxes.

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Make sure you gather all required documentation before submitting your OIC forms. Some of the items you need include:

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Bank and financial statements.
Credit card statements.
Mortgage payment information.
Car loan information.
Information about investment accounts.
Health care bills and statements.
Receipts and invoices for child care.
Rental receipts and lease if applicable.
Transportation receipts.
Utility bills.
Grocery receipts.
Copies of the tax returns for the years covered by the offer.

How Much Should My Offer Be?

The IRS will evaluate your ability to repay your taxes based on its established collection standards. The IRS Collection Financial Standards document provides the monthly amounts that the IRS deems reasonable for common expenses such as transportation, utilities, housing, health care, clothing, and food. If your monthly spending in these areas is considered excessive, the IRS may renegotiate for a higher offer amount.

The IRS uses a basic formula to calculate the minimum acceptable offer. This number is called your reasonable collection potential (RCP). First, your allowable monthly expenses are subtracted from your monthly income. This number is multiplied by 12 if you can pay the whole amount in five months or by 24 if you need a longer installment plan. Next, the value of your assets is diminished by any mortgages or loans on these assets. This number is added to the first number to calculate your RCP.

Consider whether you can pay your offer all at once or if you plan to request a partial payment installment plan. This program allows you to settle your back taxes for less than the full amount by making payments over time.

The IRS approved 27,000 offer in compromise settlements in 2015, with an average amount of about $7,500 per taxpayer. Only about 40% of OIC offers were accepted by the IRS in 2015.

What Happens If My Offer Is Rejected?

You have the right to appeal the IRS decision about your OIC. To do so, you must submit Form 13711, Request for Appeal of Offer in Compromise, within 30 days of receiving the offer rejection. During this time period, you may need to renegotiate your offer and/or provide additional requested documentation about your financial situation.

Your appeal request must include the following information:

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Your name.
Social Security number.
Mailing address.
Best telephone number where you can be reached during the daytime.
A statement of appeal.
A copy of the rejection letter you received from the IRS.
Notation of the tax years in question.
A list of items with which you disagree and additional documentation that supports your position.
Any other information you want to include for consideration.
A statement indicating that the provided information is true under penalty of perjury.
Your signature.

If you do not plan to appeal, you can request an installment agreement to prevent future IRS collection attempts.

Hiring a tax professional to help prepare your offer in compromise increases the chances that your offer will be accepted. Find a trustworthy, qualified firm online with Solvable. We’ll ask a few questions about your back taxes and match you with vetted back tax assistance agencies. Help is on the way!

Andrea Miller

Expert Contributor
Last Updated: December 19, 2021

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